Why White High School Drop Outs Have More Wealth Than Black College Graduates

Earlier, I pointed out that families headed by white high school dropouts have higher net worths than families headed by black college graduates.

Judging by my emails, this struck some as nearly unbelievable. So, I figured an attempted explanation might be in order.

Sadly, data with which to study why this is the case is limited to, essentially, the Panel Study on Income Dynamics, which has its own limitations (particularly around Hispanics and immigrants). Nonetheless, a number of studies have used the PSID to analyze this question (see, e.g., McKernan+, Gittleman & Wolff 2004, Shapiro+). I have not gone into the PSID data myself and so I can't really offer the kind of analysis those who have can. If you are really interested, I'd read that literature.

With that said, there are certain broad points that should at least help to understand how such a reality is possible.

First, understand that blacks and Hispanics have lower incomes than whites up and down the educational spectrum.

On average, black families at a given level of educational attainment receive incomes that are just 66% of what white families at the same level of educational attainment receive. For Hispanic families, that figure is 79%. Naturally, when education-controlled income disparities like this exist, education-controlled wealth disparities will exist.

Second, understand that even blacks, Hispanics, and whites with the same incomes have dramatically different net worths.

On average, black wealth is 26% of white wealth, even controlling for income. For Hispanics, the figure is 31%. Peruse the studies above to try to tease out why. Note here though that, according to Gittelman and Wolff, this is not because blacks have lower savings rates. Inheritance and in-life wealth transfers also appear, in all of the studies, to play a non-trivial role.

In any case, these two facts alone make the education-controlled wealth disparity more than plausible. Blacks and Hispanics coming out of college receive less income than their white peers and that income translates into less wealth than whites with similar incomes. When education-controlled income is lower and income-controlled wealth is lower, there is only one way for that to wind up: a serious racial wealth gap, even among people with similar education.

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